EFF leaders split over national budget, VAT increase

The Economic Freedom Fighters (EFF) is grappling with internal divisions over whether to support the national budget, with senior leaders split on the political and strategic implications of the decision.

Despite the party’s long-standing stance against the budget — on the basis that it fails to address systemic inequality and economic exclusion — some EFF leaders believe that backing certain provisions is necessary for the party’s political relevance and long-term stability. Others believe that any form of support would betray the EFF’s core principles and alienate its voter base.

Sources close to the matter said misalignments on the budget have caused strife in the party and have also publicly played out in parliament, with some EFF MPs speaking against the budget while others have argued in its favour.

“This opportunity has granted us a place to compete again and to gain momentum in getting into the government of national unity (GNU) we have strong policies to push this coalition forward, but there’s a challenge that we don’t have a solution to because while we don’t want hikes, not being part of the negotiation processes is a mistake we don’t want to repeat,” one senior party source said.

During a meeting of parliament’s finance committees last week, EFF treasurer general Omphile Maotwe challenged Finance Minister Enoch Godongwana to justify how increasing VAT would benefit South Africans.  

Godongwana, on 12 March, announced a VAT increase of one percentage point over two years, halving the size of the unpopular measure that saw him forced to abandon his initial budget in February for lack of political support.

“The very people we claim to protect from tax hikes will suffer when bread prices rise,” she said. “What exactly are you protecting?”

Maotwe also slammed the government’s failure to tackle tax avoidance and illicit financial flows, arguing that the South African Revenue Service should recover money owed to it by corporations instead of burdening individual taxpayers and, by extension, the economy.

“This crisis is deepening. South Africa is our only home — we need urgent, practical solutions to rebuild our economy,” Maotwe said.

At the weekend, EFF leader Julius Malema told the Sunday Times that the party would be willing to negotiate with the ANC over passing the budget, with a view to opening the door for it to get positions in the GNU and the cabinet. This has heightened divisions in the party, with some saying leaders are pulling in different directions, leading to chaos.

“The challenge is the party is under rebuilding and yes we need the build up in terms of positions and if you think about it, three cabinet posts will take us there, but at what cost?” said another senior party source.

“The finance minister is saying 0.5 [percentage point VAT increase] now and it sounds tempting, but after we have sold our souls we will not be able to back out even if we are against the decision years from now. We will be called crybabies because we jumped into a decision out of desperation and not for the people.”

The Red Berets have previously said they would only support the budget if Godongwana agrees to reverse the VAT hike and finds additional money through a reduction of cabinet perks and scrapping second deputy minister positions. They also say the treasury could sacrifice ministers’ cars and that more money could be generated through increases in wealth and corporate tax.

A third senior EFF source close to the negotiations said the party was expected to demand a full reworking of the budget to identify other funding options before considering any proposals. This would allow it to renegotiate for positions in the GNU and renew its calls for the Democratic Alliance (DA) and Freedom Front Plus to be kicked out of the coalition.

“The impasse, in our view, provides an opportunity to revisit the GNU negotiations, which will prioritise clear policy direction. This will also help the finance ministry to avoid such blunders which have placed the country on hold,” the third source said. “Unlike the DA which we are clear we do not want to work with, we will prioritise South Africans by implementing policies that protect the poor. We are clear in our economic policies and believe we can provide clear objectives to get the GNU moving forward.”

The source added that the party was looking for three positions in the GNU and was willing to negotiate with the ANC on which portfolios or ministries to take in exchange for voting for the budget in parliament.

“Look, what happened during the GNU negotiations [after last year’s general elections] was rush work and what we saw is that the ANC was backed into a corner to finalise government, but look where that brought them back to us,” they said.

“We maintain that the door remains open for us to join the GNU but not if we have to compromise our values for blue lights [VIP cars]. It has to be on merit and merit means revival of the economy by finding money where it is wasted.”

EFF spokesperson Sinawo Thambo reaffirmed the party’s opposition to VAT increases, despite ongoing negotiations with the ANC. He said the EFF is open to discussions with the DA on budget-related matters.

The ANC has indicated its willingness to have conversations with all parties — within or outside the coalition government — to get the budget approved. ANC secretary general Fikile Mbalula last week announced that the party would approach the EFF to try to find middle ground to support the budget after the DA rejected it.

This week, DA finance spokesperson Mark Burke said the party remained resolute in its opposition to any VAT increase.

“We reject the idea that we cannot find the equivalent of a 0.5 [percentage point] VAT hike in efficiency savings, especially when we know that we have multiple parts of the government doing the same work and not getting results,” he said.

He declined to say what the basis would be for a legal challenge to the increase, recently mooted by the DA’s federal chairperson, Helen Zille, as an option the party may pursue if the political impasse is not resolved.

It is expected in political and economic circles that the VAT dispute will become a long war of attrition between the two biggest parties in the GNU. 

The DA’s pronouncements confirm that the standoff is also an attempt to secure greater say in decision-making in the GNU and concessions on economic and fiscal policy.

In the meanwhile, the legal framework allows for the increase to take effect on 1 May.

As parliament noted in a message this week, MPs do not vote on the budget as a single document but rather on different budget-related Bills that follow a structured process.

In terms of the Money Bills Amendment Procedure and Related Matters Act, taxation changes can be implemented at the start of the tax year, before the legislature has passed the Rates and Monetary Amounts Bill. The VAT Act similarly states that the new rate will be effective from the date prescribed by the minister.

But, in a presentation to parliament’s standing and select committees on appropriations on Tuesday, the parliamentary budget office questioned the wisdom of the proposed increase and of allowing it to take effect before the Rates Bill is passed, noting that it would be impossible to reverse the effect of the increase if it is not approved.

“The projected revenue gains from the 2018 VAT increase did not materialise,” it said. 

“The 2019 budget revealed a R22.2  billion deviation in VAT collections from initial estimates, raising questions about the accuracy of revenue forecasting. Therefore, it is prudent to question the revenue projections of the 2025 VAT increase, and to assess if the same errors are being made.”